Q&As | Exam 1 - 4 (Draft!)
Bill wants to sell shares of RFD stock and receive the proceeds of the sale the same day. He has contacted Griffith Securities to conduct the transaction. The broker-dealer finds that one of its customers, Frank, is willing to purchase the stock and pay for it on the same day. This transaction will be considered complete: Once Frank is recorded as the owner
*Cash settlement (same-day settlement) is complete when the customer is recorded as owner of the stock. It is not when the confirmation is sent—as often is the case.*
The syndicate manager has just informed you that your firm will be participating in a follow-on offering of a thinly traded OTC equity security for which your firm is a market maker. Under Regulation M, as the principal in charge of the trading department, you would: Withdraw your quote immediately
A member firm participating in a distribution of an OTC equity security is required to withdraw its quotations during the Regulation M restricted period. Passive market making, and filing for excused withdrawal status, would only be applicable for a registered Nasdaq market maker.
The current inside market on CLRR stock is 16.30 - 16.70. A passive market maker's current bid is 16.15. If the highest independent bid falls to 15.80, the passive market maker should: Drop its bid to no higher than 15.80
A passive market maker must lower its bid to a price that is no higher than the highest independent bid.
An overseas investor who acquires securities pursuant to Regulation S may sell the securities overseas immediately through a designated offshore securities market. There is a distribution compliance period (holding period) of 40 days for debt securities and a one-year period before an equity security sold pursuant to Regulation S may be resold in the U.S.
An overseas investor who acquires securities pursuant to Regulation S may sell the securities overseas immediately through a designated offshore securities market. There is a distribution compliance period (holding period) of 40 days for debt securities and a one-year period before an equity security sold pursuant to Regulation S may be resold in the U.S.
A U.S. issuer conducts an offering of corporate bonds in Spain. How long is the holding period if a broker-dealer wants to offer the securities to an investor in the U.S.? 40 days
An overseas investor who acquires securities pursuant to Regulation S may sell the securities overseas immediately through a designated offshore securities market. There is a distribution compliance period (holding period) of 40 days for debt securities and a one-year period before an equity security sold pursuant to Regulation S may be resold in the U.S. (71084)
When would a new issue listed on a national securities exchange become marginable? 30 days after it begins trading
Any security listed on a national securities exchange (e.g., NYSE or Nasdaq) is marginable under Regulation T of the Federal Reserve Board. However, the Securities Exchange Act of 1934 prevents a dealer from extending credit on a new issue for at least 30 days.
A transaction in a security that is reported to TRACE may be seen by the public: Immediately
Any transaction in a TRACE-eligible security executed between 8:00 a.m. and 6:29:59 p.m. (i.e., TRACE hours of operation) must be reported within 15 minutes. Once the transaction is reported, it is available to the public immediately.
Any transaction in a TRACE-eligible security executed between 8:00 a.m. and 6:29:59 p.m. (i.e., TRACE hours of operation) must be reported within 15 minutes. Once the transaction is reported, it is available to the public immediately.
Any transaction in a TRACE-eligible security executed between 8:00 a.m. and 6:29:59 p.m. (i.e., TRACE hours of operation) must be reported within 15 minutes. Once the transaction is reported, it is available to the public immediately.
Which of the following statements is TRUE concerning the organizational structure of a REIT? 5 or fewer individuals may not own more than 50% of the value of its stock
As a general rule, a Real Estate Investment Trust (REIT) in its second taxable year must meet two ownership tests. There must be at least 100 different shareholders and 5 or fewer individuals may not own more than 50% of its common stock during the last half of its taxable year.
A prehearing conference may be set up by the hearing officer to prepare the parties for the hearing in an effort to make the proceedings more efficient.
A prehearing conference may be set up by the hearing officer to prepare the parties for the hearing in an effort to make the proceedings more efficient.
A prospectus that is filed as part of an automatic shelf registration may omit which of the following pieces of information? *Whether the offering is a primary offering or a secondary offering*
A prospectus that is filed as part of an automatic shelf registration may omit which of the following pieces of information? *Whether the offering is a primary offering or a secondary offering*
A security may be signed by either a guardian, authorized third party or for a corporate account a designated officer and would be considered good delivery. A parent signature is not automatically considered good delivery, since the custodian of the account must sign for an UGMA account.
A security may be signed by either a guardian, authorized third party or for a corporate account a designated officer and would be considered good delivery. A parent signature is not automatically considered good delivery, since the custodian of the account must sign for an UGMA account.
A working order is considered a not-held order in which the brokerage firm is given the discretion to exercise its judgment in the execution of the order.
A working order is considered a not-held order in which the brokerage firm is given the discretion to exercise its judgment in the execution of the order. The Limit Order Protection Interpretation does not apply to such orders. The fact that the client mentioned a desired target price for the working order does not make it a limit order, since the brokerage firm still has discretion regarding that price.
If a person a person has not been convicted, he is not subject to statutory disqualification and may stay employed at a member firm.
If a person associated with a FINRA member firm has been indicted or pleads guilty to a felony or a misdemeanor that involves the purchase or sale of a security, theft, robbery, burglary, extortion, forgery, or counterfeiting, the event must be reported to FINRA. This would include shoplifting and, in some states, driving under the influence (DUI). Since the person has not been convicted, he is not subject to statutory disqualification and may stay employed at a member firm.
ABC Corporation currently has an equity issue in registration. Broker-Dealer X, which has not previously followed ABC, would like to publish comments about the company. Under which of the following circumstances may Broker-Dealer X publish comments about ABC Corporation? Broker-Dealer X, although an underwriter, limits its comments to ABC's nonconvertible debt
SEC rules permit broker-dealers that are not participating in a distribution to publish information, opinions, or recommendations about an issue in registration, if the issuer is a reporting company. Additionally, a broker-dealer that is participating in the distribution of common stock or convertible debt may comment on the nonconvertible debt or preferred stock of the issuer. In order to make comments as found in choices (b) or (d), the broker-dealer's research report would need to be of a continuing nature. Coverage may not be initiated during the registration period. (71010)
Which of the following persons needs to be fingerprinted? A partner who supervises the trading desk but does not engage in retail sales
SEC rules require that all partners, directors, officers, and employees be fingerprinted. Anyone who handles funds and/or securities must be fingerprinted. Exceptions are granted to personnel having access to original books and records who are not engaged in the sale of securities, and registered representatives engaged solely in the sale of REITs. (71080)
Any person who acquires more than 5% of any equity security must file a form with the SEC within how many days? *10 Days*
Section 13(d) of the Exchange Act requires anyone who acquires more than 5% of an issuer's equity securities to notify, within 10 days after the acquisition, the issuer, each exchange on which those securities are traded, and the SEC.
Which of the following statements is TRUE concerning securities held in street name? Client positions must be segregated in bulk by the broker-dealer
Brokerage firms typically hold clients' positions in street name, which means the shares are registered in the name of the firm or another nominee name. Positions can be registered in a client's name and delivered in certificate form (transfer and ship) unless the security has been issued in a book-entry form only format in which certificates are unavailable. An alternative registration is transfer and hold in which securities are registered in the client's name and held at the brokerage firm. The firm is permitted to levy a fee for this service. Client positions must be segregated in bulk by the firm and may not be commingled with proprietary (firm-owned) positions. The DTCC does not have a designated account in which to house client positions.
Upon filing a Form U5 with FINRA, a broker-dealer is NOT required to take which of the following actions? Provide a copy to the salesperson, who has left the firm, within 10 business days from the date of termination
Each associated person's employment application (generally Form U4) and termination notice (generally Form U5) must be retained for three years after termination of employment. The U5 is filed by the broker-dealer to inform FINRA that the RR is no longer employed by the member firm. It must contain the reason(s) the RR has left the firm and a copy must be provided to the RR within 30 days. The firm must also file updates if answers to certain disciplinary questions on the form change within 30 days following the date of termination. (70193)
Which of the following statements is NOT TRUE regarding the internal inspections of a broker-dealer's offices? The inspection must be conducted by a person who regularly conducts business from the location being inspected
Each member firm shall inspect every OSJ and any branch office that supervises one or more non-branch locations on at least an annual basis. For branch offices that do not supervise one or more non-branch locations, an inspection is required every three years. For non-branch locations, an inspection should be conducted on a regular, periodic schedule. Under FINRA rules, member firms must ensure that the person conducting the inspection is not an associated person who is assigned to the location or is not directly or indirectly supervised by an associated person assigned to the location.
Consider the following information for Gemstar Trading, an introducing broker-dealer. Market-making activities: 12 stocks priced at $5 or less 20 stocks priced at greater than $5 Gemstar's minimum net capital requirement based on this information is: $100,000
Gemstar would be classified as a securities dealer under the net capital rule with a minimum requirement of $100,000. Gemstar doesn't make markets in enough issues for the formula dictated by the price of the stock to matter. If it made a market in one issue, its net capital requirement would still be $100,000.
The Code of Arbitration will not apply to disputes between a member firm and: FINRA
The Code of Arbitration applies to disputes between a member firm and a customer, a member firm and an employee, a member firm and another member firm, or between a member firm and a nonmember broker-dealer. Arbitration does not apply to disputes between a member firm and FINRA. In the event of a non-business-related dispute (discrimination, etc.) between a member firm and an employee, the arbitration process may or may not be used based on the preferences of the employee. (98497)
Which of the following systems is NOT associated with securities quoted on the Consolidated Quotation System (CQS)? OTCBB
The Consolidated Quotation System (CQS) collects and displays quotations for exchange-listed securities that trade over-the-counter (OTC). Transactions in CQS securities that take place over the phone or through private connectivity providers are reported to the Trade Reporting Facility (TRF), and are printed on Network A of the Consolidated Tape. Transactions in stocks quoted on the Over-the-Counter Bulletin Board (OTCBB) are reported to the Over-the-Counter Reporting Facility (ORF). The OTCBB is not related to the trading or reporting of transactions in CQS securities.
Which of the following securities is NOT quoted on the Consolidated Quotation System? A security quoted in the Pink Sheets
The Consolidated Quotation System (CQS) provides quotations for listed securities that are traded in markets outside of the primary marketplace where the security is listed. For example, an NYSE- or AMEX-listed security trading in the OTC market is quoted on CQS. A security that does not meet the listing requirements of Nasdaq is referred to as an OTC equity security and is quoted on either the OTC Bulletin Board (OTCBB) or in the Pink Sheets. These securities are not quoted on CQS. (99015)
The Nasdaq Market Center Execution System may also be referred to as the: Single Book
The Nasdaq Market Center Execution System is sometimes referred to as the Single Book. This system was formed through the integration of Nasdaq's three separate execution platforms into a single platform that allows for trading all Nasdaq, NYSE, and AMEX securities.
All of the following items are required in a report to the Order Audit Trail System (OATS), EXCEPT: The time limit the order is in force
The Order Audit Trail System (OATS) is a system that enables a regulator to effectively review market activity in regard to customer orders within a member firm, conduct surveillance, and enforce rules. OATS records the life of an order from receipt, to routing, to modification if applicable, and to cancellation or execution. The CUSIP number is a unique identifier for a specific security and does not need to be included in an OATS report. All of the other information is required in an OATS report. (98759)
The Reserve Bank Account must be a separate account maintained by the broker-dealer distinct from any other account of the broker-dealer.
The Reserve Formula requires the listing of the credit items. The total value of the credit items must be on deposit at the bank unless the member firm has offsetting debit items. For example, assume that the amount labeled under total credits is $100,000. If there were no total debits listed, the full amount of $100,000 would need to be deposited. However, the firm may use the total credits to apply against the total debits and, thereby, reduce its required deposit. If the total debits were $20,000, the firm would be required to deposit only $80,000 in the Reserve Bank Account. Computations must be made either monthly or weekly. *If the broker-dealer makes monthly calculations, it must maintain 105% of the required amount on deposit.*
An order ticket must contain all the following information, EXCEPT the: National best bid and offer at the time the order was entered
The national best bid and offer (NBBO) is not required on an order ticket. Information that is required includes whether it is a purchase or sale and, if a sale, whether long or short, the account number or name, the time the order was entered and executed, whether the order was discretionary or discretion was not exercised, the name of each associated person responsible for the account, the name of anyone who entered or accepted the order on behalf of the customer, and the originating office identifier.
When a broker-dealer must deposit payments associated with a contingency underwriting in an escrow account as required, the funds must be deposited in an account established with a bank.
The purchase payments associated with a contingency offering must be transmitted *promptly* to a bank that has agreed in writing to hold all such funds in escrow.
The staff of the Division of Market Regulation of the SEC has stated that order tickets must contain two time stamps, one for the time the order is entered and one for the time of execution.
The staff of the Division of Market Regulation of the SEC has stated that order tickets must contain two timestamps, one for the time the order is entered and one for the time of execution.
A preliminary proxy statement is filed with the SEC under which of the following situations? A proposed merger transaction
There are two types of proxy statements that are filed with the SEC. A preliminary proxy statement must be filed with the SEC at least 10 days prior to the date the definitive proxy is sent to shareholders. The second type, the definitive proxy, is given to shareholders to provide them with the information that will allow them to make an informed decision on the matter being voted on. In certain circumstances, the SEC does not require a company to file a preliminary proxy statement. This is the case if the matter being voted on relates only to the election of directors, the election or approval of the company's accountants, or a proposal that was put forth by shareholders of the company's stock under SEC Rule 14a-8 (the rule that addresses when a company must include a shareholder proposal in its proxy). A business combination, such as a proposed merger, would require the filing of a preliminary proxy.
The amount of restricted securities that may be sold within a three-month period under Rule 144 is: The greater of 1% of the shares outstanding or the average weekly volume of trading in the previous four weeks
There is a limitation on the amount of stock that may be sold pursuant to Rule 144. If a stock is listed on an exchange, the maximum that may be sold is the greater of 1% of the total shares outstanding or the average weekly volume of the past four weeks.
Pat worked at Normandy Securities as a registered representative until she was terminated on July 1. One year later on July 1, she joins the military. She serves for three years and, during that time, contemplates returning to the securities industry. Thirteen months after being honorably discharged, she gets a job offer from another broker-dealer. Is she subject to a qualification examination? She is not subject to requalification through examination
Under normal circumstances, a person who leaves a securities firm for more than two years must retake a qualification examination. However, FINRA applies a tolling (stops the clock) for two years when a person enters the service. Therefore, Pat has special inactive status. This status continues for 90 days after discharge. Since she is still under the two-year limit, Pat is not subject to a requalification examination. (98327)
A client who has a portfolio margin account receives a maintenance call as a result of an unfavorable market move. When is the maintenance call due? *Within 3 business days*
Under portfolio margining rules, maintenance calls are due within three business days. Most firms employ more stringent house rules when dealing with portfolio margin customers.
What information may be included in a communication NOT deemed to be a prospectus? The offering price
Under the Securities Act of 1933, almost any written material about a new issue might be considered an offer of that security. This would usually result in the material being classified as a prospectus that would need to be filed with and reviewed by the SEC in order to be used legally. However, the Act provides several exceptions under which certain materials will not be considered prospectuses and will not be required to be filed if their content is limited in prescribed ways. A communication not deemed to be a prospectus would be most commonly known as a tombstone ad. A tombstone may contain the names of the underwriters, offering price, type of industry, and size of the offering. The other choices would be contained in the prospectus.
Concerning a customer account transfer, upon receipt from a customer of a transfer instruction form (TIF), when must the receiving firm send instructions to the carrying firm? Immediately.
When a customer wants to transfer part or all of the assets of her brokerage account to another firm, the customer will fill out a transfer instruction form (TIF). This form is sent from the new broker-dealer (the receiving firm) to the old broker-dealer (the carrying firm) using the National Securities Clearing Corporation's Automated Customer Account Transfer Service (ACATS). The receiving firm must immediately send this form to the carrying firm upon receipt from a customer. The carrying firm must either validate the instructions or take exception within one business day and, within three days following the validation, the carrying party must complete the transfer of the account to the receiving party.
A stock is sold short on the ex-dividend date. Which of the following would receive the cash dividend? The lender of the stock
When an investor sells short, the broker-dealer executing the short sale borrows the stock on behalf of the investor. Since the stock was sold short on the ex-dividend date, the owner (lender) and not the buyer of the stock is entitled to the cash dividend. Remember, for the buyer of the stock to be entitled to the cash dividend, the purchase must be made prior to the ex-dividend date.
When issuing a research report recommending stock to customers, a member firm is NOT required to notify customers that the member firm was a manager or co-manager of an underwriting of: Convertible debt within the preceding two years
When issuing a research report, the member firm must indicate in the report if it was a manager or comanager of any underwriting of any class of the corporation's securities within the preceding 12 months. This applies to debt as well as equities. (99579)
In response to an issuer's corporate action (dividends and stock splits), the Nasdaq Market Center Execution System will take the following actions concerning adjustments for open orders and quotes.
1. All bid and offer quotes will be purged from the system. 2. All orders shall be canceled in the event of a reverse stock split. 3. Sell orders will not be adjusted automatically by the system and should be modified by the market participant that entered the order. 4. *Buy orders will automatically be adjusted by the system* depending on the corporate action taken by the issuer. For example, in the case of a cash dividend, the order would be adjusted downward by the amount of the cash dividend, unless the order was marked "DNR" (do not reduce).
A Currency Transaction Report (CTR) must be filed within how many days? 15
A Currency Transaction Report (CTR) is also called a FinCEN Form 104. It is filed by financial institutions for deposits and withdrawals that exceed $10,000 in a single business day. The form must be filed no later than the 15th day following the transaction.
Lear, Howard and Simon, a small boutique investment banking firm, is discussing the possibility of a Regulation A+ offering for Big Apple Sound Studios. Some of the officers of Big Apple would like to sell a portion of their equity interest in the company. Under Regulation A+, the maximum amount that may be sold on behalf of selling shareholders is: $15,000,000
A Regulation A+ offering is a small-dollar offering of no more than $50,000,000 over a 12-month period. However, the maximum amount that may be sold on behalf of existing shareholders is $15,000,000.
A broker-dealer borrows from a bank using customer and firm securities as collateral. The bank may: Have a lien on firm securities to support customer indebtedness
A broker-dealer may never commingle stock of customers with stock belonging to noncustomers, including the broker-dealer's own stock. If a broker-dealer wishes to borrow against stock that it owns and stock belonging to its customers, the broker-dealer must borrow in two separate loan accounts. It is possible that one or both accounts may have excess equity. For example, assume that a broker-dealer takes $100,000 of its own stock to the bank and borrows $50,000. It also takes $100,000 of stock belonging to customers and borrows $50,000. The bank notifies the broker-dealer that it would be willing to lend an additional $20,000 in each account and, therefore, there is excess collateral value in each account. The bank inquires of the broker-dealer if it should use the excess collateral in each account as a guarantee of the loan in the other account. For example, if the market value of the broker-dealer's stock remains at $100,000 and the market value of the customer's stock drops to $80,000, the bank would apply the excess collateral in the broker-dealer's account as a guarantee of the customer account. If the market value of the customer's stock remains at $100,000 and the market value of the broker-dealer's stock drops to $80,000, the bank would apply the excess collateral in the customer's account as a guarantee of the broker-dealer's account. The broker-dealer could allow a cross-lien on its account to support the customer's account, but could not grant a cross-lien on the customer's account to support the broker-dealer's account. In addition, the bank is not permitted to rehypothecate the customer's securities. (99135)
A broker-dealer receives a written customer complaint concerning a registered representative who recently left the firm to join another broker-dealer. Which of the following actions would be MOST relevant? Updating Forms U4 and U5
A broker-dealer might receive a written customer complaint after an RR has left the firm. Even if an RR is no longer registered, the RR is subject to regulatory jurisdiction for at least two years after his registration is terminated. The most relevant choice is to update Forms U4 and U5 since if the answers to any questions change on these forms, an amendment must be filed within 30 days. Forms U4 and U5 both ask questions concerning whether a person has been the subject of a complaint. There is no requirement to notify FINRA unless the complaint is related to allegations of theft or misappropriations of funds or securities, or forgery. In addition, FINRA permits an updated U4 filing as a method of notification. There is also no requirement to forward a copy of the complaint to the new broker-dealer (although the previous firm could notify the new firm).
A broker-dealer that engages solely in the sale of redeemable investment company shares on a subscription-way basis, and that does not hold funds or securities of customers, is required to maintain a minimum net capital of: $5,000
A broker-dealer that engages solely in the sale of redeemable investment company shares (mutual funds) on a subscription-way basis, and does not hold funds or securities of customers, is required to maintain a minimum net capital of $5,000. This type of broker-dealer would be allowed to engage in an occasional transaction for its own account as well.
An investment company chooses to distribute a circular regarding one of its growth funds, but does not want the circular to be considered a prospectus. The circular may contain all of the following information, EXCEPT: Fund performance figures presented in a pictorial format
A circular or other form of advertisement will not be considered a prospectus if it contains limited information. The circular may state the fund's objectives, the fund's emphasis on growth or income, and the name of its principal officers. However, fund performance figures may not be included.
A customer would have excess equity in a margin account if the: Current equity exceeds the Reg. T requirement on the current market value
A margin account has excess equity when the equity in the account exceeds the Regulation T requirement on the current market value. For example, if the current market value in the account is $20,000, the Reg. T requirement on that amount is $10,000 ($20,000 x 50%). If the equity in this account exceeds $10,000, there is excess equity in the account.
All of the following statements are TRUE concerning a margin disclosure statement and a new account, EXCEPT: It must be a separate document and may not be part of any other document.
A margin disclosure statement describes the risk to a customer when trading securities on margin. There are two delivery requirements both of which pertain only to non-institutional (retail) customers—one for a new a margin account and other regarding an annual delivery requirement. Prior to opening a new margin account, a broker-dealer must furnish to the customer, individually, in paper or electronic form, and in a separate document (or contained by itself on a separate page as part of another document), the margin disclosure statement. In addition, any member that permits non-institutional customers either to open accounts online or to engage in transactions in securities online must post such margin disclosure statement on the member's Web site in a clear and conspicuous manner. "It must be a separate document and may not be part of any other document" is not true: it can be included as part of new account documentation provided it is a separate page.
Which of the following statements is TRUE concerning broker-dealers accepting orders from customers for a NMS-listed stock? A member firm may, but is not required to, accept stop orders and stop limit orders.
A member firm may, but is not required to, accept stop orders and stop limit orders for NMS stocks.
A member firm must begin deducting from net capital a short securities difference which is unresolved for more than: Seven business days
A member firm must begin to deduct from its net capital any unresolved short security difference that has existed for more than seven days.
The responsibility to notify a customer whose account is carried on a fully disclosed basis, or the existence of a clearing arrangement, falls upon: The carrying firm.
According to FINRA Rule 4311, when a customer opens an account with a member that clears all trades on a fully disclosed basis with another firm, the customer must be notified in writing of this agreement. The clearing or carrying firm is responsible for notifying the customer.
A third party is making a tender offer for the shares of BAZ Inc. The tender offer announcement appeared in the newspaper on October 15. Two weeks later, the third party wants to extend the length of the tender offer. This is permitted provided: A press release is issued no later than the morning of the day following the scheduled expiration date of the offering.
According to SEC Rule 14e-1 (Unlawful Tender Offer Practices), if a person extends the length of a tender offer, they are required to issue a notice of the extension through a press release or other public announcement. This is required no later than 9:00 a.m. Eastern Time, on the next business day following the scheduled expiration date of the offer. The notice must include the approximate number of securities deposited to date.
A broker-dealer operating with $5,000 of net capital would like to be able to receive and hold customer assets. The firm will amend its BD application accordingly. How much additional net capital will be required to facilitate this change in status? $245,000
According to SEC Rule 15c3-1, a broker-dealer that carries customer accounts and receives or holds funds and securities (a general securities firm) must have net capital of $250,000 (i.e., $245,000 additional capital is required). A broker-dealer that carries accounts but does not hold customer funds or securities must keep net capital of $100,000.
A broker-dealer that makes a market in 200 stocks priced above $5.00 is required to maintain a net capital of: $500,000
According to SEC Rule 15c3-1, the net capital rule, market makers are required to maintain net capital of $1,000 for each security valued at $5 or less and $2,500 for each security priced above $5, with a maximum net capital requirement of $1,000,000. 200 stocks multiplied by $2,500 per position equals a $500,000 requirement.
Which of the following statements is TRUE concerning a predispute arbitration clause? The customer must be provided with a copy of the clause within 30 days of signing.
According to SRO rules, predispute arbitration clauses contained in customer account forms must be highlighted and must contain certain information, including: 1. All parties are giving up the right to sue in court, and arbitration awards are generally final and binding. 2. Arbitrators do not need to explain the decisions for their award. 3. Within 30 days of signing the agreement, the customer must be sent a copy and, after receiving a copy, the customer must acknowledge receipt. 4. Predispute arbitration clauses may not limit the ability to make an award or limit the amount of the award.
An investor purchasing securities under Section 4(6) of the Securities Act is required to receive: No disclosure document
According to Section 4(6) of the Securities Act, an offering by an issuer may be considered an exempt transaction if certain conditions are met. The amount of the offering may not exceed $5,000,000. No advertising or public solicitation may be used to offer the securities, and the offering may be sold only to accredited investors. There are no document delivery requirements, but the transaction is subject to the antifraud provision of the Act. This exemption is different from Regulation D where a limited number (35) of nonaccredited investors may participate.
Under industry rules, in which of the following offerings may a restricted person make a purchase? Convertible debt offerings
According to industry rules, a member firm should make a bona fide offering of new issues to the public and not withhold any shares for its own account, the accounts of any of its employees, nor for any other industry insiders. New issues include all initial public offerings (IPOs) of equity securities that are sold under a registration statement or offering circular. This would include an IPO by a company being sold by private equity investors, an ADR with no preexisting market outside the U.S., and private placements not sold pursuant to Regulation D. The following securities are not considered new issues and may be sold to restricted persons. - Secondary offerings - All debt offerings, including convertible and non-investment-grade debt - Private offerings, including securities sold pursuant to Regulations D and 144A - Preferred stock offerings - Investment company offerings - Exempt securities as defined under the Securities Act of 1933 - Direct Participation Programs and REITs - Rights offerings, exchange offers, and offerings made pursuant to an M&A transaction - ADR offerings that have a preexisting market outside the U.S.
If the security enters the limit state and fails to move back inside the price bands, after what time frame will the exchange issue a trading pause in the security? 15 seconds
According to the Limit Up/Limit Down (LULD) Rule, if a security enters the limit state and fails to move back inside the price bands within 15 seconds, the primary listing exchange will issue a five-minute trading pause in the security.
If the current ask price on Nasdaq is greater than the last reported transaction price, what is the highest price at which stabilization could be initiated? The Last transaction price.
After the opening of quotations in a security's principal market, stabilization may be initiated at a price no higher than the last independent transaction in the principal market if (1) the security has traded in its principal market (Nasdaq in this case) on the day stabilizing is initiated or on the preceding day, and (2) the current asked price in the principal market is equal to or greater than the last independent transaction price.
An aged fail is a fail to deliver that: Is deducted from a broker-dealer's net capital
An aged fail is a fail to deliver that has been outstanding for 5 business days or longer. When calculating a firm's net capital, a broker-dealer is required to deduct from the contract value a percentage of aged fails to deliver.
In regard to the Reserve Bank Account pursuant to Rule 15c3-3, all of the following statements are TRUE, EXCEPT: Deposits required in the Reserve Bank Account must be made on the business day following the computation.
All answers are true except "Deposits required in the Reserve Bank Account must be made on the business day following the computation", since deposits must be made in the account on the second business day following the calculation. The Reserve Bank Account must be a separate account maintained by the broker-dealer distinct from any other account of the broker-dealer. "The broker-dealer may use the amounts labeled as total credits under the Reserve Formula only for the specific purposes indicated under total debits" is a true statement and describes the Reserve Formula. The Reserve Formula requires the listing of the credit items. The total value of the credit items must be on deposit at the bank unless the member firm has offsetting debit items. In this case, the amount of the debit items may be deducted from the credit items and the net amount deposited in the Reserve Bank Account. For example, assume that the amount labeled under total credits is $100,000. If there were no total debits listed, the full amount of $100,000 would need to be deposited. However, the firm may use the total credits to apply against the total debits and, thereby, reduce its required deposit. If the total debits were $20,000, the firm would be required to deposit only $80,000 in the Reserve Bank Account. Computations must be made either monthly or weekly. If the broker-dealer makes monthly calculations, it must maintain 105% of the required amount on deposit.
An ADF Trading Center is required to be open from 9:30 a.m. to 4:00 p.m., which is defined as normal business hours. The ADF system is open from 8:00 a.m. to 6:30 p.m. An ADF Trading Center may voluntarily open before 9:30 a.m. or stay open past 4:00 p.m.
An ADF Trading Center is required to be open from 9:30 a.m. to 4:00 p.m., which is defined as normal business hours. The ADF system is open from 8:00 a.m. to 6:30 p.m. An ADF Trading Center may voluntarily open before 9:30 a.m. or stay open past 4:00 p.m.
Investors must generally pass a three-part test in order to be considered a QIB. 1. Only certain types of institutions are eligible, including insurance companies, registered investment companies, pension plans, corporations, and registered investment advisers. 2. The buyer must be purchasing for its own account or the account of other QIBs. 3. The buyer must own and invest *at least $100 million* of securities of issuers not affiliated with the buyer.
Certain buyers are subject to special tests as alternatives to the three-part test. For example, a broker-dealer is a QIB if it owns and invests $10 million of securities of issuers not affiliated with the BD, or if it acts as a riskless principal for other QIBs. Banks and S&Ls, in addition to meeting the $100 million portfolio test, must have a net worth of $25 million. An investment company can be a QIB by being part of a family that in the aggregate meets the $100 million portfolio test. Finally, any entity where all of whose owners are QIBs is also a QIB.
Which of the following statements is TRUE regarding the Code of Procedure? Within 60 days after the Hearing Panel has stopped accepting evidence, it must render a decision
Complaints handled under the Code of Procedure are often initiated by public customers. However, if the Office of Disciplinary Affairs believes, as a result of its own surveillance, that a registered person has violated SRO rules, it can instruct the Department of Enforcement to issue a complaint. Respondents have 25 days to answer a complaint once received and the Hearing Panel, which has original jurisdiction in Code of Procedure matters, must render a decision within 60 days after all evidence has been received. When FINRA expels a member, it is effective as soon as the decision is served on the respondent. (70194)
A client has made $12,000 in contributions to her nonqualified annuity. This year, at age 66, she withdraws the entire $17,000 value from the annuity. Which of the following consequences is the result of this withdrawal? She has a $12,000 cost basis and $5,000 will be taxed as ordinary income
Contributions to a nonqualified annuity are made in after-tax dollars. The growth of an annuity is tax-deferred. When withdrawing from a nonqualified annuity, the after-tax contribution is equal to the cost basis ($12,000). The value of the annuity above the cost basis ($5,000) is taxable as ordinary income, not as a capital gain. (98584)
What is the acronym associated with the process of a client instructing his bank to deliver securities against payment by the clearing firm? *RVP*
DVP means broker delivers securities. RVP means broker receives securities
A registered person employed by a member firm has been arrested for a misdemeanor involving bribery. Which of the following is TRUE? This event would most likely need to be disclosed to the firm and does not require disclosure on a Form U4
Disclosure or updating a Form U4 is required if a person has been convicted or charged, or pled guilty or no contest to any felony or misdemeanor involving investments or an investment-related business or any fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting, extortion, or a conspiracy to commit any of these offenses. Since the person has been arrested but has not yet been charged with a crime this offense does not need be disclosed on Form U4 or to FINRA. Most firms would require notification if a registered person was arrested for any offense. (82846)
FINRA rules require broker-dealers to report the occurrence of certain events within 30 days. These events include: - Written customer complaints involving allegations of theft or misappropriation of funds or securities, or forgery - Any securities or commodities-related judgment, award, or settlement against an RR for more than $15,000 ($25,000 if the claim is against the firm) - If the firm or any associated person is indicted, or convicted of, or pleads guilty to any felony; or any misdemeanor that involves the purchase or sale of any security, bribery, perjury, burglary, larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, or securities, or a conspiracy to commit any of these offenses, or substantially equivalent activity in a domestic, military or foreign court - A disciplinary action against an RR by the member firm involving suspension, termination, the withholding of commissions, or imposition of fines in excess of $2,500
FINRA rules require broker-dealers to report the occurrence of certain events within 30 days. These events include: - Written customer complaints involving allegations of theft or misappropriation of funds or securities, or forgery - Any securities or commodities-related judgment, award, or settlement against an RR for more than $15,000 ($25,000 if the claim is against the firm) - If the firm or any associated person is indicted, or convicted of, or pleads guilty to any felony; or any misdemeanor that involves the purchase or sale of any security, bribery, perjury, burglary, larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds, or securities, or a conspiracy to commit any of these offenses, or substantially equivalent activity in a domestic, military or foreign court - A disciplinary action against an RR by the member firm involving suspension, termination, the withholding of commissions, or imposition of fines in excess of $2,500
A broker-dealer that is a member of FINRA executes a transaction on the London Stock Exchange. If the transaction is reported to the foreign exchange, the broker-dealer: Does not need to report this transaction
FINRA rules require members to report transactions in OTC equity securities (which includes foreign equities). However, the reporting requirement excludes foreign security transactions if executed on and reported through a foreign securities exchange, or executed OTC and reported to the regulator of a foreign securities market.
One of the registered representatives in your office wants to contact prospective customers beginning at 8:30 a.m. This activity: Would be permitted
FINRA's Telemarketing Rule prohibits unsolicited telephone calls prior to 8:00 a.m. or after 9:00 p.m. local time, based on the destination of the call. Since the calls would begin at 8:30 a.m., they would be permitted. There is no requirement to deliver a privacy notice. (82962)
A registered representative has resigned from the firm. The fingerprint card of this employee must be retained for: Three years following her resignation
Fingerprint cards, as well as other employee records, including Forms U4 and U5, must be preserved for three years following an employee's affiliation with a broker-dealer. This is in accordance with SEC Rule 17a-4 dealing with the preservation of books and records. (99464)
Which of the following statements is NOT TRUE if an issue is delisted from Nasdaq? The issuer must meet the minimum maintenance levels to be readmitted to Nasdaq
If an issue is delisted from Nasdaq, the issuer must reapply and satisfy initial listing requirements in order to be relisted on Nasdaq. An issue that is delisted from Nasdaq may trade on the OTCBB or the OTC Pink Marketplace. The financial reporting requirements of the Securities Exchange Act of 1934 are, in part, based on an issuer's level of assets and shareholders.
A broker who transacts an order for a customer must send a confirmation disclosing all of the following information, EXCEPT: If it acted as principal and that it prepares research on the security
If the broker-dealer acted as an agent for both the customer and for a third party, it must disclose this fact. A broker is not required to disclose on a confirmation whether it prepares research on the security. The yield computation employed (YTM or YTC) must be disclosed to the client. (98433)
If the Regulation T margin requirement is 50%, a sale of $100,000 of stock in a restricted margin account would release:
In a restricted account, the sale of stock allows the withdrawal of an amount equal to the initial margin requirement times the amount of the sale. As the margin requirement is 50%, the investor could withdraw $50,000. The firm must retain the balance according to the retention requirement.
A broker-dealer buys stock for its inventory from an institutional customer. The stock is a Nasdaq issue in which the broker-dealer does not make a market. With regard to reporting this trade, which of the following statements is TRUE? The member must report the trade to TRF because the member must report in a transaction with a customer
In a transaction between a customer and a member involving a Nasdaq stock, the member must report the trade, irrespective of whether it makes a market in the stock. (98751)
According to Sarbanes-Oxley, the annual reports filed with the SEC by publicly traded companies are required to contain all of the following provisions, EXCEPT: A statement that the firm has filed the required SEC forms when it has raised capital in the public markets
In addition to these three items, Sarbanes-Oxley also requires that the annual report include a statement by management acknowledging its responsibility for the establishment and the maintenance of adequate internal controls over the company's financial reporting. A firm issuer is always required to file the appropriate SEC forms when raising capital in the public markets. (99245)
In all accounts with multiple owners, only one Social Security or tax ID number is used for tax reporting purposes.
In all accounts with multiple owners, only one Social Security or tax ID number is used for tax reporting purposes.
A testimonial may be used: If the provider has the knowledge and experience to form a valid opinion
In member firm communications, if a testimonial is used that relates to a technical aspect of investing, the provider must have the knowledge and experience to form a valid opinion. If any retail communication or correspondence includes a testimonial about the investment advice or investment performance of a member firm, it must prominently disclose the fact that the testimonial: 1. May not be representative of the experience of other customers 2. Is not a guarantee of future performance or success 3. Is a paid testimonial (which is the case if more that $100 is paid to the provider of the testimonial)
In order for broker-dealers to be able to report transactions in TRACE-eligible securities, the managing underwriter is required to provide certain information to FINRA. The information includes the CUSIP number, the issuer's name, the coupon rate, the time the new issue is priced, a brief description of the issue, and any other information FINRA deems necessary.
In order for broker-dealers to be able to report transactions in TRACE-eligible securities, the managing underwriter is required to provide certain information to FINRA. The information includes the CUSIP number, the issuer's name, the coupon rate, the time the new issue is priced, a brief description of the issue, and any other information FINRA deems necessary.
Which of the following statements is NOT a condition for a broker-dealer to be granted passive market-maker status? A Nasdaq market maker who is a syndicate member is required to act as a passive market maker
In order to comply with parts of Regulation M, a market maker may need to be granted excused withdrawal status or passive market-maker status by FINRA. A Nasdaq market maker is not required to act as a passive market maker. The syndicate manager must apply for this status on behalf of any affected syndicate member no later than the business day prior to the first entire trading session of the one- or five-day restricted period under Rule 101. The manager then notifies each affected syndicate member that it will have passive market-maker status or that its quote will be withdrawn on an excused basis, unless that market maker directly notifies FINRA otherwise. Passive market makers are identified on Nasdaq by the abbreviation PSMM and, in order to comply with the net purchases limitation, a passive market maker must notify Nasdaq for an excused withdrawal. (98785)
A broker-dealer has a fail-to-deliver position as a result of bona fide market-making activities and not being able to deliver stock by the settlement date. Under SEC Regulation SHO, the firm must: Within three settlement days purchase or borrow the security
In order to further reduce the number of fail-to-deliver positions, the SEC adopted Rule 204 to Regulation SHO. This rule will require a broker-dealer that sells an equity security to either deliver the security by settlement date (T + 2), or immediately purchase or borrow the security no later than the beginning of trading on the next settlement day (T + 3). Settlement day is used in Regulation SHO and has the same meaning as business day. If the fail was the result of bona fide market-making activities by the broker-dealer, the close-out requirement would be three settlement days following the settlement date (T + 5).
Broker-Dealer A has requested biotech industry reports from analysis provider B. These reports will be available upon request to customers of Broker-Dealer A. If Broker-Dealer A has no influence or editorial control over the content of the reports, which TWO of the following statements are TRUE? I. The reports are classified as independent third-party research. II. Approval by an SA of Broker-Dealer A is not required.
Independent third-party research has been prepared by a person or firm unaffiliated with the broker-dealer that is making the reports available. If the broker-dealer has no editorial control over the content of the reports, approval by a supervisory analyst or a principal of the broker-dealer is not required. The disclosures that are required within the report are the responsibilities of the firm preparing the report, rather than the firm that is distributing the report.
Information barriers are required between which two departments of a broker-dealer? Research and Trading.
Information barriers are required between which two departments of a broker-dealer? Research and Trading.
Communication with the public must be approved by a principal if it is targeted to which of the following? Bluestar Software, an incorporated entity with $40 million in assets
Institutional communications must be supervised and monitored by the member firm, but are not required to be approved by a principal prior to use. FINRA defines institutional investors as any of the following entities. Banks, savings and loans, insurance companies, registered investment companies, and registered investment advisers Government entities and their subdivisions Employee benefit plans, such as 403(b) and 457 plans, and other qualified plans with at least 100 participants Broker-dealers and their registered representatives Individuals or any other entities with total assets of at least $50 million Persons acting solely on behalf of institutional investors Bluestar does not qualify as an institutional investor since it does not meet the minimum monetary requirement of $50 million for any other entity—whether a natural person, corporation, partnership, or trust. The other choices are automatically considered institutional investors and are not subject to a specific asset test. (75831)
A trade executed by a broker-dealer at 3:55 p.m. must be reported to the ADF: As soon as practicable
Member firms must report to the ADF as soon as practicable but no later than 10 seconds after execution, last sale reports of transactions in ADF-eligible securities executed between 9:30 a.m. and 4:00 p.m. Eastern Time. The ADF reporting facility is open from 8:00 a.m. until 6:30 p.m.
Which of following is a NOT a Nasdaq Global Select initial listing requirement? A minimum price-to-book ratio
Nasdaq has numerous quantitative listing standards that issuers must meet to initially list on its system. Of the three types of listings, the Nasdaq Global Select is the most stringent. There are a number of alternative requirements an issuer may meet. These include, but are not limited to, the public float, stockholders' equity, bid price, revenue, number of market makers, the number of shareholders, and cash flow from operations. The price-to-book ratio is not a consideration.
A member firm has a customer limit order to buy 1,000 shares at $36.40. If the member firm purchases stock at $36.40 to facilitate a customer market order to buy stock, it is: Not required to fill the customer limit order if it satisfies the riskless-principal exception
One of the exceptions to the Prohibition Against Trading Ahead of Customer Orders (Manning Rule) is the riskless-principal exception. If the proprietary trade is to facilitate a riskless-principal basis transaction (the market order from a customer to buy stock), it is not required to fill the limit order at $36.40. The trade report must identify the execution as a riskless-principal trade and the firm must have written policies and procedures in place in order to rely on the riskless-principal exception.
Regulation FD requires that material nonpublic information disclosed to analysts or other investors must be made public. If the disclosure is intentional, the information must be simultaneously disclosed to the public. If the disclosure is unintentional, the public disclosure must be made within 24 hours. One method of meeting the public disclosure requirement is the filing of Form 8-K with the SEC.
Regulation FD requires that material nonpublic information disclosed to analysts or other investors must be made public. If the disclosure is intentional, the information must be simultaneously disclosed to the public. If the disclosure is unintentional, the public disclosure must be made within 24 hours. One method of meeting the public disclosure requirement is the filing of Form 8-K with the SEC.
Regulation S-X applies to all of the following choices, EXCEPT: Documents filed under the Trust Indenture Act of 1939
Regulation S-X sets forth the form and content for financial statements filed under the Securities Act of 1933 and reports filed under the Securities Exchange Act of 1934. The Trust Indenture Act of 1939 requires a trustee to be retained by an issuer of certain corporate debt offerings, but the Act is not impacted by Regulation S-X. (99656)
The sale of restricted securities by an officer of the issuer would be in compliance with SEC Rule 144 if, among other things, the: Issuer of the securities is current with its SEC reporting requirements
Restricted stock may be sold if it was paid for in full and has been held for at least six months (not 90 days), prior to sale. The broker-dealer handling the sale under Rule 144 may do so through a broker's transaction that does not involve a solicitation or a principal basis. The issuer of the securities must be current with its SEC reporting requirements.
The board of directors wants to take a public company private. The required filing is: Schedule 13E-3
SEC Rule 13e-3 applies to going private, a transaction by issuers of publicly traded securities. The issuer is required to file a Schedule 13E-3 with the SEC. (71050)
In order for a subordination agreement to satisfy the requirements of Rule 15c3-1: The agreement may be supported by either cash or securities.
Subordinated loans may qualify as part of a broker-dealer's net capital if the loan has a minimum duration of one year. The lender must subordinate any claim of repayment to the claims of all other creditors of the broker-dealer. The loan may be in the form of cash or securities and must be filed with the SEC at least 10 days prior to its effective date. A loan that qualifies as part of a broker-dealer's net capital is called a satisfactory subordinated loan. Note that in order to qualify as equity for purposes of meeting the debt-to-equity requirement, a satisfactory subordinated loan must meet three additional requirements. 1. The lender must be a partner or stockholder. 2. The minimum duration of the loan is three years. 3 The loan may not contain a provision allowing accelerated maturity.
A broker-dealer is participating as a syndicate member in a firm-commitment underwriting of Euclid Industries. The public offering price is $16.00, but the offering has not been well-received and the broker-dealer is thinking about lowering the price to $15.50 in order to stimulate interest. The offering price of $16.00 must remain firm: Unless released by the syndicate manager
Syndicate members are required to maintain the public offering price and may not sell the issue at a lower price unless the syndicate manager releases them to do so. The syndicate remains in effect until the syndicate manager terminates it.
John Smith, who is a customer at Green Day Brokerage Firm, maintains three accounts with the broker-dealer. He has two cash accounts and one margin account. In one cash account there are fully paid securities worth $300,000 registered in his name and the other has $50,000 in cash. The margin account has equity worth $100,000. How much would the Securities Investor Protection Corporation (SIPC) cover in Mr. Smith's accounts? $150,000
The Securities Investor Protection Corporation (SIPC) provides coverage for each separate customer to a maximum of $500,000, of which no more than $250,000 may be for cash holdings. If a customer maintains a cash and margin account, both accounts would be combined when determining SIPC coverage. However, securities that can be specifically identified as belonging to a customer will be distributed to the customer without regard to the dollar amount limits discussed previously. Mr. Smith will receive the $300,000 worth of securities registered in his name and be covered for $150,000 of cash and securities in his other accounts. Unless the question mentions otherwise, assume that the securities are held in street name by the broker-dealer. (99212)
A transaction in an equity security is executed at 5:05:01 p.m. The trade must be reported to the FINRA: 5:05:11 p.m. the same business day
The TRF and ORF are open from 8:00 a.m. to 8:00 p.m. ET. Transactions in equity securities must be reported to FINRA as soon as practicable but no later than 10 seconds after execution anytime the reporting systems are open.
A transaction in a security listed on Nasdaq is executed at 3:05:01 a.m. The trade must be reported to the TRF: 8:00:01 a.m.
The TRF and ORF are open from 8:00 a.m. to 8:00 p.m. ET. Transactions in equity securities must be reported to FINRA as soon as practicable but no later than 10 seconds after execution anytime the reporting systems are open. Transactions in equity securities (whether they are listed on Nasdaq or any other exchange), executed between midnight and 8:00 a.m., are reported to FINRA/TRF between 8:00 a.m. and 8:15 a.m. ET. 8:15:01 a.m. is incorrect since the reporting time is after 8:15:00.
On Wednesday, July 15, a customer purchases the stock of a company that declared a 10% stock dividend on July 7 that is payable to holders of record on Thursday, July 16. In this case the: Seller will receive the additional shares
To be entitled to the dividend, the customer would have had to purchase the stock prior to the ex-dividend date. For cash dividends and for stock dividends of less than 25%, the ex-dividend date is one business day prior to the record date. If the record date is Thursday, July 16, the ex-dividend date would be July 15. A purchase on July 15 would be made on the ex-dividend date and, therefore, the seller, not the buyer, would be entitled to the dividend.
Under FINRA rules, if a person is granted discretion the firm is required to: - Obtain the signature of each person authorized to exercise discretion in the account - Record the date such discretion is granted - Record the age or approximate age of the customer in connection with exempted securities other than municipals
Under FINRA rules, if a person is granted discretion the firm is required to: - Obtain the signature of each person authorized to exercise discretion in the account - Record the date such discretion is granted - Record the age or approximate age of the customer in connection with exempted securities other than municipals
A broker-dealer may satisfy the information requirement of SEC Rule 15c2-11 by having in its possession any of the following choices, EXCEPT: A private placement memorandum for the latest Regulation D offering by the issuer
Unless an exception is available, a broker-dealer wishing to initiate or resume quotations for a non-exchange-listed security must have in its possession one of the following five sources of information about the security to be quoted. 1. A prospectus filed with the SEC under the Securities Act of 1933, which has been in effect for less than 90 days 2. A Regulation A offering circular, effective within the preceding 40 days 3. The issuer's latest Form 10-K and all subsequent Form 10-Qs and Form 8-Ks (and the issuer must be current in its filings) 4. For foreign securities, financial information filed with the SEC during the issuer's last fiscal year under Rule 12g3-2(b) or 5. 16 specified items of information about the issuer, which must be reasonably current in relation to the day the quotation is published. A Regulation D offering memorandum will not satisfy the information requirement.
Rachel has been the number one producing registered representative for Axelrod Financial Services for the last five years, but has recently pled guilty to a felony related to a domestic disturbance at her home last year. Axelrod Financial Services has just received notification from FINRA that Rachel's registration has been revoked because of her guilty plea and the firm wishes to ask for relief. How long does Axelrod have to apply for relief? 10 business days
When FINRA issues a notice to a member regarding a disqualification, the notice must state that the member may file a written application requesting relief on behalf of itself, or a person associated with the member, within 10 business days after service of the notice. In compliance with FINRA Rule 9522, if the member fails to file the application requesting relief within 10 business days, the registration of the disqualified person will be revoked.
Which of the following employees would be allowed to open an account at another member firm without requiring prior written approval of his employer? A trader at a mutual fund that transacts business with a member firm
With the exception of the trader at a mutual fund, all of the individuals listed are employees of a FINRA member firm, and would require prior written consent of their member firm in order to open an account at another member firm. Since the insurance agent is selling variable annuities as an employee of a member firm, he would also be subject to the rule.
